May 21, 2021

NEW: Third SEC Commissioner Raises Concerns about Weak "10b5-1" Insider Trading Rules

Trades by Emergent Biosolutions CEO and Other Executives Reveal Major Flaws

Commissioner Lee's Letter (PDF)Senators' Feb 10th Letter (PDF)

Washington, DC -  United States Senators Elizabeth Warren (D-Mass.), Sherrod Brown (D-Ohio), and Chris Van Hollen (D-Md) today released a letter from Securities and Exchange (SEC) Commissioner Allison Herren Lee responding to their February 10, 2021 letter urging the SEC to review and consider reforming policies for "10b5-1" stock trading plans amid reports that executives are abusing these plans to obtain huge windfalls at the expense of ordinary investors. 

Under SEC rules, company executives can create 10b5-1 plans to establish schedules to sell their company stock while obtaining a "safe harbor" from insider trading rules.  But the Senators' February letter revealed a number of concerns about abuse of these plans.

On April 27, 2021, Senator Warren sent another letter to the SEC calling for an investigation into Emergent BioSolutions CEO Robert G. Kramer's sale of $10 million worth of his stock under his 10b5-1 plan prior to public disclosures that the company had ruined 15 million doses of the Johnson & Johnson COVID-19 vaccine. Reports show Kramer had ample knowledge of production issues when he scheduled his sell-off.

Statement from Senator Warren today: 

"Emergent's CEO appears to have engaged in pandemic profiteering under the guise of Rule 10b5-1 plans: he personally profited from millions of dollars of taxpayer-funded contracts while the company he led caused critical delays in the COVID-19 response - and he then protected his personal profits by selling his stock at inflated prices before the company disclosed its failures," said Senator Warren. "Abuses from executives like Emergent's CEO, combined with the 10b5-1 plans' lack of transparency, hurts investors and risks undermining public confidence, which is why I have urged the SEC to investigate and consider reforming the rule."

From Commissioner Lee's letter to Senator Warren: 

"The Commission adopted Rule 10b5-1 in August 2000 and has not substantively revisited it since then. In the intervening years, market developments and other circumstances have revealed aspects of the rule that may need to be reconsidered, including whether better disclosures about these plans are warranted."

Commissioner Lee also wrote that she has instructed SEC staff to "review Rule 10b5-1 and develop recommendations for possible changes," including reforms that Senator Warren has recommended:

"Your letter identifies a number of approaches, such as cooling off periods, that may enhance the rule's effectiveness. With respect to disclosure, there are no specific requirements related to information about 10b5-1 plans and, while some public companies do disclose the details of transactions made pursuant to their 10b5-1 plans, many do not. Similarly, while some insiders indicate on their beneficial ownership reporting forms when transactions are conducted pursuant to 10b5-1 plans, many do not. I agree that improvements may be in order, and I have instructed the staff to review Rule 10b5-1 and develop recommendations for possible changes. As part of this review, the staff will consider the points you raise with respect to public disclosure of 10b5-1 plans, cooling off periods and short-swing profits."

Notably, Commissioner Lee is the third SEC Commissioner to indicate support for improving the 10b5-1 rules, indicating that changes would have majority support: both Commissioner Crenshaw and Chair Gensler have indicated they support changes to prevent abuse of these rules.